Annual report 2010 - Dexia.com

Notes to the consolidated financial statementsManagement reportConsolidatedfinancial statementsAdditional information Annual financial statements1.23.2. Post-employment benefitsIf Dexia has a legal or constructive obligation to pay postemploymentbenefits, the plan is either classified as “definedbenefit“ or “defined contribution plan“. Dexia offers anumber of defined benefit and defined contribution plansthroughout the world, the assets of which are generally heldby insurance companies or pension funds. The pension plansare generally funded by payments from both Dexia and itsemployees.In some cases, Dexia provides post-retirement health carebenefits to its retirees.1.23.2.1. Defined benefit plansEmployee benefit obligations are measured at the presentvalue of the estimated future cash outflows using theinterest-rates of AA-rated corporate bonds, which have termsto maturity approximating to the terms of the related liability.Assumptions on which assessment of pension expenses arebased, among other things, on actuarial and demographicassumptions, and on the inflation rate.Pension costs are determined based on the Projected UnitCredit Method, under which each period of service gives riseto an additional unit of benefit entitlement and each unitis measured separately to built up the final obligation. Netcumulative unrecognised actuarial gains and losses exceedingthe corridor (greater than 10% of the present value of thegross defined benefit obligation and 10% of the fair value ofany plan assets) are recognised in income over the averageremaining working lives of the plan participants.The amount recognised in the balance sheet is the presentvalue of the defined benefit obligation (i.e., the presentvalue of the expected future payments required to settle theobligation resulting from the employee service in the currentand prior periods), as adjusted for unrecognised actuarialgains and losses and unrecognised past service cost, andreduced by the fair value of plan assets at the balance sheetdate. The defined obligation is presented net of plan assetsas a liability or an asset. Therefore an asset may arise wherea plan has been overfunded and are recorded separately ifthose assets are held by a Group entity.Any asset recognised is limited to the total of any cumulativeunrecognised net actuarial losses and past service cost, andthe present value of any economic benefits available inthe form of refunds from the plan or reductions in futurecontributions to the plan.Qualified internal and external actuaries carry out valuationsof these obligations. All valuations assumptions and results arereviewed and validated by an external actuary for Dexia thatensures that all calculations are harmonised and calculated incompliance with IAS 19.1.23.2.2. Defined contribution pension plansDexia's contributions to defined contribution pension plansare charged to the statement of income in the year to whichthey relate. Under such plans, Dexia's obligations are limitedto the contributions that Dexia agrees to pay into the fund onbehalf of its employees.1.23.2.3. Post-employment medical careThe entitlement to these benefits is usually based on theemployee remaining in service up to retirement age and thecompletion of a minimum service period. The expected costsof these benefits are accrued over the period of employment,using a methodology similar to that for defined benefitpension plans.1.23.3. Other long-term benefitsThese mainly includes provisions for jubilee premiums thatemployees receive after completion of specified periods ofservice.Unlike defined benefit plans, actuarial gains and lossesrelating to these benefits are immediately recognised. All pastservice costs are recognised immediately in the statement ofincome.Employee entitlement to annual leave or long-service leave isrecognised when it is granted to the employee. A provisionis made for the estimated liability for annual leave and longserviceleave as a result of services rendered by employees upto the balance-sheet date.1.23.4. Termination benefitsA termination benefit provision is only recorded when Dexiais obliged to terminate the employment before the normaldate of retirement or to provide benefits as a result of anoffer made in order to encourage voluntary redundancy. Insuch cases Dexia has a detailed formal plan and no realisticpossibility of withdrawal.1.23.5. Share-based paymentDexia offers equity-settled share based payments like stockoptions plans (SOPs) and employee share purchase plans(ESPPs) and cash-settled share-based payments.The fair value of equity-settled plans is measured at grantdate by reference to the fair value of the underlying equityinstrument based on valuation techniques and on market dataand takes into account market-based vesting conditions. Theimpact of other vesting conditions is reflected in the accountsvia an adjustment of the number of equity instrumentsincluded in the measurement. The fair value, recognised as aremuneration expense, is credited against equity.In cash-settled share-based payments, the services receivedand the liability incurred, to pay for those services, aremeasured at the fair value of the liability. This fair value ismeasured at the grant date and at each reporting date untilsettled. The fair value is recognised as a remuneration expensewith a corresponding increase in liabilities.1.24. PROVISIONSProvisions are mainly recognised for litigations claims,restructuring, and loan commitments.Provisions are measured at the present value of theexpenditures expected to be required to settle the obligation.The discount rate is the pre-tax rate that reflects currentmarket assessments of the time value of money.140 Dexia Annual report 2010